Key challenges

Performance review

Key performance indicators

Key:

Target achieved: ✔

Target not achieved: ✖

Overview

Revenue for the year was R756 million (2016: R755 million). Emerging Africa was confronted with ongoing weak economic conditions and a lack of investment in infrastructure projects. This resulted in slow sales volume growth in most of our geographies. The LPG and CO2 supply constraints from South Africa experienced in 2016 were adequately addressed and minimal supply disruptions were experienced in 2017. Despite economic headwinds, all Emerging Africa countries recorded an increase in EBITDA margins.

Performance in consumer demand growth areas such as Healthcare, CO2, LPG and Special Gases is at lower than desired levels due to lack of consumer affordability. This resulted in limited consumer demand growth across the region and is most evident in Namibia where packaged LPG volumes experienced a small market contraction.

Developments in Africa

Major repair projects were completed on the ASU in Zambia. The dedicated 11 kVA transmission line secured from local electricity supplier, ZESCO, has dramatically reduced electricity supply shortages, improving productivity. Afrox negotiated the line in late 2016, which now allows the plant to operate for three weeks of every month before maintenance takes place in the fourth week.

The Group continued to establish a footprint in Mozambique. The new 8 600 m2 headquarters hub in Maputo was opened in May 2017 and supports a sales centre, storage facilities for cylinders and Hard Goods, and filling facilities for oxygen. The facility has sufficient space for expansion and reflects Afrox’s commitment to fostering long-term relationships with customers in the country. The facility further positions Afrox to maintain and develop market share for our products in Mozambique.

Governance

Standardisation of the organisational structures to The Linde Group’s Blueprint for small countries was implemented for all Emerging Africa counties in the first half of the year. The most significant change was moving away from a regional model in each country, towards a functional one. The Regional and Area Sales Managers are now unfettered with operational responsibilities and can focus on sales responsibilities. Afrox expects this development to be converted into opportunities for increased customer engagement and sales.

The governance landscape in Emerging Africa continues to improve through ethics and compliance training interventions. Internal Control Steering Committees were created in each country. The responsibility of each of these committees is to monitor the internal control environment, with self-assessments on key internal controls and closure of internal audit findings.

Vale Mozambique

Vale Mozambique is the fourth largest open pit coal mine in the world and is located in Moatize, in the Tete Province. The concession has a projected life span of 35 years with seven years of production being realised to date.

The mine currently processes an average of 38 000 tonnes per day. The annual production of coal doubled from 5.4 million tonnes in 2016 to 11 million tonnes in 2017. Since its inception Vale has invested approximately USD14.4 billion. The investments have provided a medium to long-term business opportunity for Afrox, which is Vale’s preferred supplier of industrial and refrigerant gas. The Company has won two significant tenders to provide products and services to the mine until 31 July 2019.

In addition, approximately 70% of the contractors working at the mine utilise Afrox products, particularly industrial products, arc equipment, welding consumables and accessories. Our products and services are preferred because of our stringent safety and quality standards. Very few suppliers in Tete meet the high level of safety and quality standards synonymous with Afrox’s brand and those required by Vale.

Future focus areas

Emerging Africa will continue to invest in its combined product offering of Industrial Gases and Hard Goods while leveraging its strong position in the LPG and CO2 market based on reliable supply.

We will expand our footprint by appointing distributors in key priority areas to take our products closer to the customer.

The sales force effectiveness training programme that started in 2017 will be continued into 2018 with emphasis on contracts and contract management, sales leader development and sales team performance.

The Company will seek to effectively position itself to capitalise on opportunities provided by the Palma Natural Gas projects in Mozambique.